Pausing right now would be a smart choice for the Fed, Dimon said in an interview with Bloomberg Wednesday while attending JPMorgan’s Global China Summit in Shanghai. But inflation is still not on the permanent downward path the Fed would like to see, he added, cautioning investors and businesses to see the momentary interruption for what it is.

“Take a pause, but I do think it’s possible they’re going to have to raise a little bit more,” he said. 

If the Fed doesn’t raise interest rates at its meeting next month, it will mark an end to the streak of 10 consecutive rate hikes that began in March last year, putting a historic squeeze on the borrowing ability of businesses and consumers. The abrupt shift away from years of near-zero rates, thus slamming the brakes on the economy, was key to the Fed’s playbook to reduce inflation, even though the central bank has also risked starting a recession, JPMorgan’s own analysts warned last year.

The Fed might feel confident about pausing hikes next month, as annual inflation rates have come down significantly since hitting several 40-year highs last summer. And even though measuring inflation over an annual timeline can lead to lagging data for important items like housing, price changes measured over shorter time frames like three or six months also show inflation is gradually declining, as recently argued by Nobel Prize–winning economist Paul Krugman.

At the same time, the Fed’s interest rate hikes are starting to have a measurable impact on economic activity, likely supporting the case for a pause. U.S. GDP growth decelerated to 1.1% last quarter from 2.6% in the last three months of 2022, spending has broadly declined since the beginning of last year among all income groups, and consumer sentiment recently fell to its lowest level since 2016.

“My simple view is that they’re right to pause at this point,” Dimon said in his interview. But a more promising picture on inflation doesn’t mean the Fed’s work is done, he warned. 

“Inflation is kind of stickier, I think people are coming around to that, which means rates will have to go up a little more. People should be a little prepared for that,” he said.

Core inflation jumped 0.4% from March to April, a much larger leap than the 0.1% monthly increase from February to March. And consumer spending, while lower than last year, also picked up significantly last month. Other key indicators of economic output, including factory production and business activity, also increased last month. And in March, employers posted 10.1 million job openings, Labor Department data on Wednesday showed, the highest number of job vacancies since January and exceeding economists’ expectations, suggesting the labor market and competitive wages might still be putting upward pressure on inflation.   

Dimon isn’t the only one warning about “sticky” inflation. Cambridge University economist Mohamed El-Erian has similarly warned that inflation risks becoming more stubborn as the Fed gets closer to its 2% goal, saying last month it will be much harder to get annual inflation below 4% to 5%. Other economists, like former Treasury Secretary Larry Summers, have warned that inflation is unlikely to dissipate unless the Fed forces a recession.

Dimon isn’t quite as pessimistic as Summers, telling CNBC in February that in his view a soft landing—where inflation falls without a surge in unemployment or sharp decline in economic activity—is still the most likely outcome. He reiterated that belief in an interview with CNN earlier this month, in which he said the recent banking crisis—bookended by JPMorgan Chase salvaging the assets of failed First Republic Bank—did not raise the risk of recession.

But the CEO says the near future will likely be rocky for markets, as the U.S. economy goes through a paradigm shift from an era of low interest rates and free money since the 2008 financial crisis, to a tighter moment gripping the economy now. 

“The other thing I’d be a little prepared for is the volatility that might very well be created by quantitative tightening,” he told Bloomberg, referring to the Fed’s strategy of raising long-term interest rates and reducing its balance sheet to cool down the economy—the opposite of what the central bank has done since the 2008 financial crisis. “I think the effects may be a little harsher than people expect, but hopefully we’ll get through all of that and be okay.”